This post is by staff writer Sarah Gilbert.
This is America Saves Week, and I am writing to you sitting next to a jar. This jar is stuffed full (okay, imagine it gently filled — it’s a small jar) of five dollar bills. I do not feel proud that this is the best way I’ve found yet to save money consistently; somehow, having it sit there on the windowsill is a gentle reminder that there are more important things than the x (a new wireless router; mine is working, just not sparklingly), y (a quick run to the shop on the corner for a thermos of coffee), and z (delivery pizza for dinner instead of leftovers) that I could spend my available cash upon.
I can’t quite figure out why this works, but I feel that there is some deep insight here. The thing is: there is “saving” money and then there is “saving money.” In one case you are putting money away that you intend to spend later (much, much later, if all goes well). In another case you are spending money, but not quite as much as you would have otherwise. The trick is to move the extra money from the latter to the former.
1. I saw the five-dollar bill jar on Pinterest…
The five-dollar bill jar is one way, and I found it on Pinterest (for those who dig that idea board site), and it works like this: every time you come into possession of a five-dollar bill, usually as change from another purchase, you save it and put it in a jar. Some savers have an envelope in their wallet (that won’t work in my tiny wallet, but anyway…) and, every $50 or so, transfer it to a high-yield savings account. Other savers have a goal in mind, like Christmas presents, and the money is for that. I’m combining two Pinterest ideas, and I’ve painted chalkboard paint on my jar so I can write in what I’m saving for.
…but it was my 9-year-old’s idea.
I was encouraged to do this by my 9-year-old, who told me one day shortly after Christmas that he had an idea.
“Why don’t you pick an amount every time you get money, like $20, and put it in a jar to save?” he asked.
“What am I saving for?”
“Christmas presents! That way you’ll have a whole lot of money!”
The world conspired to create my jar. I haven’t counted, but there must be $30 or $40 already after just a few weeks. I think this works by setting an easily followed rule that creates an emotional barrier between me and the money. If I spend a five-dollar bill, I’ve betrayed my own set of internal rules.
2. “I’ll give you all the money older than you.”
This is a natural outcome from the inspiration given to me by my first work mentor, Herb Althouse. He was a managing director in the loan syndications group at First Union; my very first job out of college. I was not even 22 when I started work, and he thought of me as impossibly, adorably young. To emphasize my adorable youth, he would regularly dig in his pocket and give me all the coins that were older than me. Ever since, I’ve very carefully saved all the coins older than me; I won’t spend a 1970 quarter, even if that means I have to use inexact change. It’s an emotional tribute to Herb. I realize that this won’t probably result in saving a ton of money (especially not if you’re born before the 60s); but it helped me establish the limits that are now keeping me from spending my fives.
How else can we use self-imposed limits to save money?
3. The paycheck deduction is a no-brainer (literally).
I remember when I first got a paycheck, for my work as a counter girl at the Arctic Circle, a fairly tiny local fast food chain that is now even tinier. (I make very occasional pilgrimages to one of the last remaining outlets in the coastal town of Newport, Oregon; it’s not as good as I remember.) I, displaying my adolescent quant jock nature, had carefully calculated what I thought would be deducted based on the hours I’d added on my time card. Every two-week pay period, I would multiply my hours by my hourly rate and then deduct 0.06 for social security; 0.165 for unemployment; and a tax rate based on the last paycheck. I knew how much, to the last nickel, would be in my check. It was so frustrating to know how much the gross income was, and then be able to spend only the net. I had a cheerleading uniform to save for!
But, I couldn’t spend the money, and one gets used to that post-deduction amount after awhile. Most adults don’t, like 14-year-old me, sit with a notebook, a pencil, and a calculator, figuring out what each check will look like. You get used to only seeing the amount in the “net” line and forgetting the deductions. That’s why it’s so useful to take advantage of whatever automatic savings plan your employer might offer, whether it’s a 401(k) or a simple automatic deduction into a savings account you designate. The Army has a fantastic savings plan for military members deployed in designated combat zones that allows soldiers to earn 10% interest on up to $10,000. Pre-paycheck deductions allow you to create that emotional distance from the money you need to keep it in the savings account.
4. Attaching your savings to a promise is a great way to make them happen.
My 9-year-old was probably inspired by the summer we saved for his Nintendo DS. I was reluctant to get him a game machine, but when his dad was deployed for the first time the two of them agreed we would tie it somehow to goals we had for his behavior. So we decided that, each time either Dad or I got paid, we would put $20 in a special envelope toward the DS: if he had been helpful over the preceding period. If he was unusually patient or wonderfully helpful, I’d add in a little extra, $5 or $10. While we were somewhat generous in assessing helpfulness, he was also quite helpful; and because I’d promised to tie the reward to his behavior, and promised him he’d eventually get the Nintendo, I had a powerful emotional incentive to keep my word.
It’s easiest to use promises to motivate your savings behavior when the term for the goal is somewhat short and the other party to the promise can monitor your progress. The physical act of putting the money in the envelope was something I did in front of my son; and we only had a few months’ time to reach our goal. You could also, if you promised a spouse or an older child, put money in an online savings account to which you both have access. Another more institutional equivalent would be if you file your taxes very early, to say that you will put some amount of money in your IRA before tax day in April. I did this for both myself and my husband this year: no motivation like not having to file an amended tax return!
5. Adding pain to both the front end and the back end is another way to save.
Yes, we’re motivated best by positive stimulus (This is my best lesson from parenting three boys with cognitive development delays.). But adding penalties is sometimes the best way of forcing ourselves to do things. I am, for instance, a wonderful saver: I can transfer money into my online savings account with the best of them! I’m rather awful at keeping myself from accessing that money if, for instance, I really want to take advantage of this one-time-only offer on super awesome film for my vintage Polaroid SX-70. Or if my friends are organizing a group buy of wool comforters (see my tax refund story).
So it’s best if I put my money in an account from which I will not be able to withdraw money easily, or without penalties. Sure, sometimes there are limits on withdrawals from savings accounts (like being penalized if you withdraw more that six times in a month), but those don’t kick in until the end of the account cycle, so that’s not necessarily a good enough penalty. I find that the “penalties” (in both brokerage fees and time for the sale to clear) of selling stock in my Sharebuilder account are far more effective as a deterrent. I have to not have money for food or the mortgage before I’ll do that. You could think of a large number of ways to add in withdrawal penalties, from structural ones, like the military’s savings plan, which only allows withdrawals every 120 days, or a 401(k), or practical ones, like adding money to some online savings or payment account, like Paypal or Dwolla, which will take a few days to “get back” if you need it, giving yourself a buffer to rethink your decision.
Adding penalties to the front end is a little more tricky, but can be accomplished by the wealth of automatic bank drafts that are available from online savings and investment accounts. The Sharebuilder account will withdraw a fixed amount of money each month from your bank account to invest in a pre-selected group of investments; you can cancel or delay it, but it will still trigger that opportunity to rethink your decision. If you’re trying to save cash, you’ll have to make your own self-imposed penalty. Maybe if you spend a five dollar bill, you have to go without something the next day (chocolate works for me as a powerful motivator!).
We all want to save. We just need help.
I don’t think there is a single Get Rich Slowly reader who doesn’t have a desire to save and to keep that money in the savings account until the emergency occurs or the goal has been reached. But it’s really hard, on both counts, and I’d be willing to bet that a surprisingly large percentage of GRS readers don’t save (or don’t save nearly enough). Starting small and easy is best; and keep in mind that we have a strong set of emotional tools at hand to help us along the way.
How can you set up emotional connections to savings, both on the front and the back end?